Living Inside a Broken Clock: Friday April 23, 2010
It looks like Greece is becoming a very crowded one-sided trade. Greece is to officiallly activate the EU/IMF aid package. Spreads tightened and Greek Banks stocks rose. The verbiage seems to be distinctly negative – probably a little too much so. This may now be a case of sell the rumour, buy the news where the EUR is concerned. I admit to having a bearish bias, but I would prefer that civilization not end just yet.
Even though GM is blowing its own horn about repaying TARP, they neglected to mention that the US taxpayer still owns 51% of that company. It’s not called Gov’t Motors for nothing.
The Horror! The Horror!
Greece is going where everyone believed that they should – into the arms of the EU / IMF. There were some decent data points regarding the consumer and business sentiment out of Europe earlier. Asia was red, except for Japan, Taiwan, Singapore , and India. Europe is green across the board, strongly so in some cases. However breadth is uneven. The DAX made a strong move off of the open (no GAP) and is consolidating at the familiar 6250 level. The low yesterday was at the support level of 6150 – and I believe we are seeing the classic range-bound trade that comes from distribution. Only the Utilities sector is red. Breadth is good, and most sectors (except financials and telecom) are up over 1% – some approaching 2%. This looks like a strong day for the risk trade – some uncertainty has been removed from the table.
ES was flat (range of 4 points) most of the night but popped off of the neutral pivot with the DAX this AM. Pivots:
- R2: 1219 = Just as high as yesterday, and I don’t really see it.
- R1: 1210.25 = Easy to reach. I think it has a strong chance of getting here.
- Neutral: 1198.50 = This was the LOD overnight ans saw a strong move up. Likely to continue to be strong support.
- S1: 1189.75 = This was the level for the ramp up at noon yesterday. It was resistance on Monday before the ramp into the close. This point has some meaning in terms of support. What could get us here? Some unexpected information, or if trading bulls are nervous and want to square away positions before the weekend.
- S2: 1177.50 = This was the area of the low on Monday. I don’t think that it will figure in today’s action.
The above comments are predicated on what we know NOW. The data coming out on Durable goods seems to have a very low bar with expectations of 0.2% vs previous (revised) of 0.9%. This comes out at 8:30 NY Time. At 10AM, it is the new home sales with 325K expected vs 308K prior. The durable goods’ data could change the sentiment – as everything seems to turn on a dime these days.
What’s behind door number 1, today?
There looks to be an upper boundary in the SPX = 1209 – 1211 range. This would need to be cleared decisively (closed above, next day opens higher and closes higher still) for the up trend to continue. In the meantime, the TD Pressure low risk SELL is still active. You can see the arrows for possible scenarios. If this level holds, we will see the classic double top.
Once again it looks like the combination of the mid-Bollinger (21-day SMA) and the white dotted “Since Oct 21” trend line put a bid under SPX. I expect more of these up and down days, simply because (As I have stated for a number of days now), the Bollinger bands on the VIX need to widen, so the volatility of volatility has to increase = more up and down movement on the SPX. From this, it looks like the SPX is moving into a slight upward sloping channel with the bottom being that trend line, and the upper boundary of the range being the high from April 15. To help you, Friday’s trend line is at SPX = 1187.67; There is no ESM0 pivot near that level.
Someone pointed out in a comment yesterday that the volume is greater on the down ticks than the up ticks. The same is true for most down days vs up days. As they said – this sure looks like distribution.
Yesterday’s interpretation of the probabilities relating to bar shape were pretty close to reality. A nice change after the prior two days. There have been only two instances since 1982 of a ’34’ bar follew by a ’45’ bar, as just happened. In both cases, the pattern was followed by a ’15’ bar – meaning that the OPEN was near the LOD, and the CLOSE was near the HOD (high of day). When one looks at just the ’45’ bar with an upward sloping SPX, then the next day is CLOSE < OPEN (53%); CLOSE = OPEN (same bar segment: 9%); CLOSE > OPEN (37%); + 1% roundoff error. I am of the opinion that (even though it goes against every sample rule) that the two bar combination is worthy of attention because of how rarely it occurs, and because of how the third bar was the same in both cases.
I am becoming of the opinion that it is the rare combinations that mean something. I intend to do some research on all 25 possible bar shapes in my universe, and the frequency of occurence of patterns, and the subsequent result of the third bar. I see this as analoguous to the Japanese candle patterns. I want to see if there are myth-takes in all the assumptions surrounding those patterns – but indirectly through my own bar shapes. This may take more than a week-end but I will keep you informed.
SPX has been above the 55-day SMA for 38 days now. We are entering dangerous territory and the probabilities favour SPX staying up here much longer (at least 51 days). If there is not a dramatic move down soon, there will be a continued move up – likely to test the 62% FIB at 1228.74 (SPX).
Bottom Line: I’m going to go out on a limb, based on the small sample, and say that today will be an up day with the CLOSE > OPEN. If it is a ’15’ bar, bonus!
What can I say? We are seeing the volatility in the VIX that I talked about, as reversion to the mean amost requires that the bollinger bands widen. In the current trading environment, this seems to need a back and forth in the VIX – which is driven by increased volatility in the the SPX.
Since I captured this chart, 12 hours have passed and the EUR has put a pin down through the lower Bollinger and the 76% FIB of the channel it is runing in. TD Pressure is near the bottom in oversold territory. EUR is back under the purple trend line that began January 13 of this year. As I mentioned in my introduction, the short trade based on Greece is exceptionally crowed at this time, an it looks like the EUR put in the double bottom last night. Next week wil confirm, but I like the odds of a move up from here given the Bollinger pin.
Right now at 7:44 AM (NY TIME) I see downward pressure to take EUR to the 1.328ish level. There is further support around 1.326ish. A move up will run into resistance at around 1.333, 1.3366, and 1.339ish, IMO – and based on Bollinger and TD technical threshholds.
My Best Regards.